The Treasury Question

While many questioned the wisdom of giving up the tax advantage MLPs have, some pointed to the fact the U.S. Treasury Department said Monday that it planned to take a closer look at MLPs and concerns over whether they deprived the government of tax revenue.

Although many experts see existing MLPs as safe –- at least for now –- The New York Times did point out that the government stopped new formations of master limited partnerships this year.

The Interest Rate Issue

Another issue MLPs face moving forward, according to The New York Times, was the possibility the Federal Reserve would raise interest rates. Such a move could make bonds more attractive fixed-income investments at a cost to MLPs.

Others suggest that interest rates would have to rise substantially for this to be a real problem.

Advantages Of Consolidation

Questions and concerns aside, there are actual advantages for MLPs like Kinder Morgan with regard to consolidating its entities.

Greg Reid of management firm Salient, who spoke with Reuters, pointed to the potential wider pool of investors saying, “(This) opens up the universe to a lot more institutional buyers.”

Restructuring also eliminates much of the complexity for companies like Kinder Morgan, freeing cash for investments and acquisitions.

So, Who Is Next?

Seeing the advantages some (larger, more mature) MLPs would have by merging entities, the obvious question is, “Who will be next?”

1) Energy Transfer Partners LP

According to Easterbrook, the next most obvious player would be Energy Transfer Partners LP (NYSE: ETP). Easterbrook cited the company’s high incentive distribution rights (IDRs) payouts to the general partners as one factor.

Energy Transfer Partners is run by billionaire Kelcy Warren. The combined value of Energy Transfer’s companies is almost $50 billion.

2) Enterprise Products Partners LP

Saying he couldn’t see any others aside from Energy Transfer that would be close to taking action, Easterbrook did note that Enterprise Products Partners LP (NYSE: EPD) also had the problem of high payouts to its GPs.